It was no surprise to see soybean prices drop to a more-than-a-decade low on the heels of an intensifying trade dispute with China, but if that wasn’t enough, the U.S. Department of Agriculture recently warned that African Swine Fever will soon be a “game-changer” for the commodity.

ASF, a contagious disease which is nearly always fatal for domestic and wild pigs, has spread to every province in mainland China since its discovery in August 2018 and is now affecting an estimated 150 million to 200 million pigs, according to a report from Rabobank published in April. That’s led to an expected 30% loss in pork production for the country, it said.

In a report earlier this month, the USDA warned that ASF in China “will be a game changer for the global oilseed complex, and soybeans in particular” in coming years. China’s Ministry of Agriculture and Rural Affairs reported that the pig herd has declined by 20% since ASF was first reported. Given that, the USDA believes the global soybean market faces a potential 42 million ton accumulated decline in China’s import demand through the 2019/2020 marketing year.

July soybeans
SN19, +0.94%
settled at $8.02 1/2 a bushel in Chicago Monday. That was the lowest finish for a most-active contract since December 2008, according to Dow Jones Market Data. Prices posted a gain Tuesday and headed higher Wednesday, but still trade more than 6% lower year to date as of Wednesday afternoon. They’ve registered losses in each of the past two years.

ASF “is one of the most significant issues to ever face the global oilseed market, and other importer demand will not be able to make up for the Chinese shortfall,” says Ken Smithmier, director of market research for agricultural markets at ClipperData.

“At this point, market participants are aware of the shortfall in demand, but the unknown is how much worse can it get and how long will it last,” he says.

INTL FCStone Chief Commodities Economist Arlan Suderman pointed out indications that hog feeding is down 40% year on year in China, “with the disease still out of control.” Hog feeding accounts for 50% of the soymeal demand in China, he said.

The loss of soybean demand for hog feed also comes at a time the market faces a sizable supply surplus.

“From a stock to usage ratio, we are at over double the historical average the number of beans stored in silos, elevators, [and] stockpiled globally relative to the global consumption,” said Daniel Hussey, market strategist at Zaner Financial Services. “If the 2019 growing year produces anywhere near what 2018 did, there is the potential for 1.2 [billion to] 1.5+ billion bushel carry-over globally.”

With Chinese demand now in question, “it really begins to paint a very uncertain picture for the future of soybean prices globally,” he said.

Trade, however, is the “only real issue,” said Todd Hultman, lead analyst at DTN.

“The bearish story for U.S. soybean prices begins with China’s decision to retaliate against U.S. tariffs in 2018, with their own set of tariffs on U.S. goods, including a 25% tariff enacted on U.S. soybeans in July 2018,” said Hultman.

In May, the USDA estimated U.S. ending stocks of 995 million bushels for the 2018-2019 marketing year, up from the April estimate of 895 million bushels.

The latest ending stocks estimate represents 25% of the annual use of soybeans, which is the highest the U.S. has seen since the 1985-1986 season, according to Hultman.

Meanwhile, there are all kinds of long-term “bad ramifications for U.S. producers as the willingness of China to buy more soybeans from Brazil is financing more expansion down south,” he said.

For now, the USDA expects an average farm price of $8.55 per bushel of soybeans for 2018-2019, “but the low end of those prices could easily dip below $7, said Hultman.

Without the trade dispute with China, he estimated that average cash soybean prices would be in the $9.50 to $10 region. DTN’s national index of cash soybean prices across the U.S. settled at $7.18 on Monday.

Looking ahead, “markets always have a chance for a surprise and the two bullish hopes for higher soybean prices in 2019 are weather and a trade agreement with China,” said Hultman. However, “here in mid-May, those bullish hopes are looking slim.”

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